Not long ago, I profiled Waste Management (NYSE:WM) and the huge financial opportunity in the trash disposal business. There’s another way to delve into this lucrative niche, albeit indirectly, and it’s through a position in Nikola (NASDAQ:NKLA) shares. This isn’t the only reason to own Nikola stock, but it’s a good one.
Of course, there’s more to Nikola than the trash-hauling angle. To be an informed investor in NKLA stock, you’ll need to believe in the future of electric vehicles generally, not just for this one special purpose.
That being said, it’s interesting to consider waste management as a significant use case for Nikola’s electric vehicles. With this development, perhaps electric-vehicle behemoth Tesla (NASDAQ:TSLA) will have to share the road with an equally bold and innovative up-and-comer.
A Closer Look at Nikola Stock
After it went public via a special acquisition company or SPAC, Nikola shares were available to the public for trading on June 4 of this year. So, the history of this stock doesn’t go back very far.
Still, there has been quite a bit of movement in Nikola stock. The shares opened at $37.55, but it didn’t take long before they slid to $33.97. Yet, that was just the beginning of a wild ride for this volatile stock.
The Nikola stock price reached the $80 level by June 9, but then bears stepped in and pushed the stock back down to the $63 area by June 26. As the old saying goes, trees don’t grow straight to heaven, meaning that we can’t expect a stock to simply go up in a straight line without pullbacks.
Another important factor is what I call the Tesla effect. Since Tesla is the most famous company in this niche, Nikola stock will sometimes mimic the movements of Tesla stock. Therefore, Nikola’s shareholders should pay close attention to the price action of both of those stocks.
Time for Some Trash Talk
As of Aug. 14, Nikola stock closed at $45.96, which is far below the June peak. This, combined with an important catalyst, means that it’s possible to buy the shares at a reduced price.
The catalyst in question is a game-changing deal in which waste management company Republic Services (NYSE:RSG) ordered 2,500 battery-powered trucks from Nikola.
Some folks might scoff at garbage hauling, but this deal represents a major coup for Nikola. As Global Market Insights, Inc., reports, municipal solid-waste management in the U.S. is projected to be a $16 billion market by the year 2026.
So, the skeptics can scoff all they want, but trash is king and Nikola’s grabbing market share with the Republic Services deal. If I had to identify the top two U.S. trash hauling companies, Republic Services would be one of them (while Waste Management would be the other).
The Analysts Weigh In
Upon receiving the news of this encouraging development, the trading community briefly lifted the Nikola stock price by 22%. Suffice it to say, then, that traders heartily approve of the Nikola-Republic arrangement.
I can’t really blame them, as this deal represents the largest single order in the waste management industry. All in all, it’s a major milestone for the refuse collection and electric vehicle markets.
On the whole, analysts seem to concur that this is bullish for Nikola. For instance, Deutsche Bank analyst Emmanuel Rosner described Nikola stock as a “short term catalyst buy” while Cowen analyst Jeffery Osborne noted the potential for “lower operation and maintenance costs over the life of the vehicle” with Nikola’s efficient trash trucks.
Meanwhile, Osborne and J.P. Morgan analyst Paul Coster have both assigned “buy” ratings to Nikola stock. I don’t always side with big-name analysts, but in light of the potentially transformative Republic deal, I’d say the experts got it right this time.
The Bottom Line
Supplying electric trucks for trash disposal is now going to play a significant part in Nikola’s business model. That should be perfectly fine with long-term Nikola stock investors.
Some people might think that trash is laughable, but a highly lucrative deal means that Nikola’s shareholders will soon be laughing all the way to the bank.
As of this writing, David Moadel did not hold a position in any of the aforementioned securities.
